In very simple terms, a contract is a legally binding agreement between two or more parties. However, in order for such agreement to be legally binding, there are some minimum requirements that it must meet.
The key components for this are as follows:
- An offer must be made from one party to the other. This could be a business offering to provide services or goods, such as by providing a quotation or proposal to the person who enquired with them.
- Acceptance of the offer must then occur. Though this is typically in writing, such as via a signature, this isn’t actually a requirement. Contracts can be accepted in any manner of ways, such as verbally, or for example by requesting services to be performed (which a supplier can then state is subject to their terms and conditions).
- Consideration must be made. This is essentially a promise to do something by one party to the other, such as a promise to provide goods and a subsequent offer to pay for those goods. In short, something must be exchanged or provided between the parties.
- An intention to create a legal relationship. This means that both parties must be aware of the contract and intend to be legally bound by its terms.
Contracts can also be of an implied nature, which usually means that they were formed due to the conduct or actions of the parties rather than a written agreement. These therefore exist and are subject to contract law, like any other contract, but no formal verbal or written confirmation of their existence is required. Understandably, these can also be much harder to enforce and dispute.
Regardless of whether a contract is express or implied, it must still have an offer, acceptance, and consideration in some shape or form. It is also crucial that there are no mitigating factors which may lead to that contract being considered invalid (and thus not legally binding) in the future. These could include things like:
- Uncertain or overly confusing terms. It is crucial that contracts (particularly written contracts) can be understood by all parties entering into them. Overly ambiguous terms that cast doubt about the purpose of the contract, and what each parties obligations were under it, cannot reasonably be enforced.
- Lack of capacity for a party to enter into the contract. This could be where a party was not in a fit mental state to enter into the contract and consent to the terms within it, or entered into it under the age of 18.
- Lack of authority, such as where an individual enters into a contract on the behalf of somebody else but did not actually have the authority to do so. This could be where an employee enters into a contract on the behalf of a business yet were never given permission to do so.
- Where a party has entered into a contract relying on information that was later revealed to be false or misleading, the contract can then be considered void as they most likely would not have entered into the agreement otherwise.
- Illegal conduct. Activities such as these cannot be upheld by the law, nor by any contract.
Templates and AI drafts are all well and good until they are rescinded and offer no protection against legal repercussions. Many businesses use these and later discover that, upon trying to enforce their contracts, they were actually never legally binding in the first place.
This is why it is so important to have in place contracts which you can be certain provide the protection that you need as a business, such as those drafted or checked over by legal professionals. Verbal agreements aren’t recommended because, should these ever need to be enforced, there is likely no formal evidence that the contract was formed correctly.
If you’re confused about what business contracts you might need, or whether your pre-existing ones are legally enforceable, feel free to contact us at 01604 217365 or info@saddlebrown-porcupine-154826.hostingersite.com. We draft bespoke contracts on a fixed price basis, and our legal packages offer flexibility depending on the number of documents you require.